Bitcoin miners are facing an uncertain future as the upcoming halving event in April 2024 threatens to squeeze their profits, according to a report by Bloomberg. The halving, which occurs every four years, slashes mining rewards in half and has historically been followed by significant price surges. However, this time around, miners are expected to encounter more hurdles due to increasing electricity costs and mounting debt burdens.
In previous halvings, miners managed to offset the reduced rewards by enhancing operational efficiency and benefiting from subsequent bull runs in Bitcoin’s price. But the forthcoming halving is anticipated to present a tougher challenge for nearly half of the miners who currently operate at suboptimal efficiency levels.
Analysts, such as Jaran Mellerud from Hashrate Index, warn that the break-even electricity price for the most common mining machines is projected to decrease from $0.12/kilowatt-hour to $0.06/kWh after the halving. Unfortunately, around 40% of Bitcoin miners currently operate at a higher cost per kWh than the projected figure of $0.06/kWh.
Mellerud further emphasizes that miners with operating costs exceeding $0.08/kWh and those who do not possess their own mining rigs will likely face substantial challenges in the aftermath of the halving.
Wolfie Zhao, head of research at TheMinerMag, echoes these concerns, stating that when factoring in all expenses, certain miners are currently operating at a total cost higher than Bitcoin’s present price. As a result, net profits may turn negative for many miners operating less efficient operations.
Adding to these woes, major mining companies are still grappling with debt reduction, which eats into their profits. Although the global mining industry’s debt has decreased from $8 billion in 2022 to approximately $4.5 billion to $6 billion, according to estimates by Ethan Vera, COO at Luxor Technologies.
Additionally, mining difficulty reached a record high in June, indicating heightened competition among miners. Consequently, profit margins are declining. Kevin Zhang, senior VP at Foundry, explains that for miners to maintain the same profit margins, BTC prices would need to soar to $50,000-$60,000 next year.
The looming halving and its potential ramifications underscore the need for miners to adapt and innovate to remain viable in the evolving cryptocurrency landscape. As the industry faces challenges on multiple fronts, mining operations will likely undergo significant changes in the coming months as participants strive to navigate the changing dynamics and ensure their long-term sustainability.
